China is worried about deflation and ready to cut rates and loosen lending restrictions, according to sources cited by Reuters.
The story is a very good reason to buy the Australian dollar or other commodity currencies to start the week.
“Top leaders have changed their views,” said a senior economist at a government think-tank involved in internal policy discussions.
The economist, who declined to be named, said the People’s Bank of China had shifted its focus toward broad-based stimulus and were open to more rate cuts as well as a cut to the banking industry’s reserve requirement ratio (RRR), which effectively restricts the amount of capital available to fund loans.
China cut the RRR for some banks this year but has not announced a banking-wide reduction in the ratio since May 2012.
“Further interest rate cuts should be in the pipeline as we have entered into a rate-cut cycle and RRR cuts are also likely,” the think-tank’s economist said.
The also highlight that local governments are struggling to manage high debt burdens, which is the principle worry of most China bears.
On Friday, I warned that almost everyone was missing the point on the Chinese rate cut and what mattered not was the actual action but whether or not it was the beginning of an easing cycle. The signals are still mixed but this is a big vote in favor of more easing.
PBOC Governor Zhou
As if disappointing data and concerns over the Eurozone, and elsewhere, haven’t been enough to create a feeling amongst those living in the UK that all is not quite so well as they thought then out comes a report that says millions of people are less than a month away from having to survive on benefits, or help from friends and family in the event of “a sudden loss of income”.
- a new “Iron Curtain” would harm Russia
- Moscow will not seek to rebuild it and others will not be able to
- Russia is not isolated over the crisis in Ukraine
Following on from foreign minister Lavrov’s accusation yesterday of the West seeking regime change in Moscow the president is also out on the front foot today in comments reported by Tass
We understand the fatality of an “Iron Curtain” for us
We will not go down this path in any case and no one will build a wall around us. That is impossible
It’s far from certain that sanctions, sharp falls in the oil price and the depreciation of the national currency will cause negative effects or catastrophic consequences only for us. No such thing will happen
Reuters has more here
Meanwhile in Germany the foreign minister Frank-Walter Steinmeier has told Der Spiegel magazine he has concerns that Russia is seeking to split up Ukraine by supporting separatists in the east and urged further dialogue with Putin’s government.
I’m taking Russia at its word that it doesn’t want to destroy the unity of Ukraine.
The reality, however, is speaking a different language.
As always with these posts I’m just reporting the news, so make sure you play nicely in that comments section!
Putin – Careful about pointing the finger of blame but says a new Iron Curtain “is impossible”
European Central Bank Vice President Vitor Constancio on Saturday during a debate in central Italy
Said he did not think “there is the risk of falling into full deflation” because nominal salaries would have to fall in all member countries “and this cannot happen”
Says the report … “It was not immediately clear what he meant by “full deflation”
Energy Minister Alexander Novak saying on Saturday (full interview yet to be aired)
Sandro Gozi, Italy’s top official on EU policy has said Italy does not expect any more requests from the European Commission to change its 2015 budget to meet European rules on debt reduction, after the budget was already tightened
- “We expect the budget to be assessed without any requests for adjustment”
More at Reuters
Not that this sort of news will have much of an impact, I wouldn’t think. Then again, if the non-event comments from Dr. Draghi can kneecap the euro by 150 points …. maybe (Here is exactly what Draghi said)
Growth engines, that is.
Xinhua reports that Chinese Premier Li Keqiang has called for “new growth engines” to counter slowing growth
(Of course, the rate cut should help:
A little more on Li comments at Reuters
Last week, the overwhelming consensus voted for the US dollar and that was a good option as it was the second-best performer after the loonie.
What will be the top performing currency this week?
Your reasons are welcome in the comments.
Five million illegal immigrants in the United States may be temporarily shielded from immigration under the executive action announced by Obama on Friday.
What will it mean for wage inflation?
“Business owners who offer their wages good wages benefits see the competition exploit undocumented immigrants by paying them far less,” Obama said.
Five million people — many of them making less than minimum wage — will now be entitled to Social Security cards. On the face of it, that will boost income.
But the flip side is that those people will now be competing at the minimum wage end of the ladder so that could keep wages low there.
In addition, it’s likely that only a small portion of illegal immigrants will take advantage of the program so the net effect will be minimal.
Overall, I can’t see it being a factor.
Following on from Adam’s look behind yesterday rate cuts by the Peoples Bank of China we now have comments from the head of the world’s most profitable lender expressing concern as to their ultimate impact
The PBOC raised the cap on what banks can pay customers for deposits to 120% of the benchmark from 110%, as it announced a 0.4 percentage point reduction in the one-year lending rate and a 0.25 percentage point cut in the 12-month deposit rate. This will mean depositors’ returns will be unchanged if lenders raise rates to the new ceiling.
The central bank said in a statement yesterday that the increased premium banks are allowed to pay depositors is
another important measure in deposit rate liberalization
But at a forum today in Beijing Jiang Jianqing, chairman of Industrial & Commercial Bank of China Ltd., China’s biggest lender warned that the move will
inevitably squeeze the profit margins of banks, and the narrower margin is a long-term trend
The erosion of profit margins will hurt banks’ ability to grow and capability to expand assets
Analysts have also expressed concerns, with Zhu Haibin, chief China economist at JPMorgan Chase & Co.HK saying
The asymmetric interest rate cut could put significant pressure on bank profitability.
This may raise the question whether banks will maintain the distribution of lending rates around the benchmark rates, or will choose to float up the range
I’m all for trimming back bank profits but it seems that the knock-on effects of these PBOC measures may yet have consequences they weren’t hoping for.
PBOC measures will hit banks where it hurts, but will they still boost growth?
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